Why Xylem's Shares Dropped

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of water treatment company Xylem fell 12% today after reporting earnings.

So what: Revenue fell 1% in the second quarter to $960 million, which was short of a $967.9 million estimate from analysts. Net income fell nearly 50% to $46 million, or $0.25 per share. Adjusted earnings of $0.36 fell short of estimates by $0.08.

Now what: To make matters worse, management reduced full-year outlook to $1.40-$1.50 per share, which is $0.39 lower than previous estimates. Even at the top end of estimates the stock trades at 17 times forward earnings, which isn't a steal given the decline in revenue. I'd stay away from this stock today and wait for improved earnings before jumping in again.

Interested in more info on Xylem? Add it to your watchlist by clicking here.